Financial services giant JPMorgan Chase & Co. downgraded its assessment of Panama’s bonds on the growing concern that the United States may repossess the Panama Canal.
On Jan. 23, JPMorgan’s Global Emerging Markets Research analysts downgraded Panamanian debt from “overweight” to “marketweight.” That, according to the company’s analysts, means that it views the country’s bonds to “perform in line with the relevant index, sector, or benchmark credit returns.”
A team of analysts at JPMorgan led by Gorka Lalaguna, an emerging markets sovereign credit strategist, said the downgrade was directly related to U.S. President Donald Trump’s recently aired goals regarding the Panama Canal.
After winning the general election in November 2024, Trump began floating the idea of a U.S. repossession of the Panama Canal. The canal was completed in 1914 by the United States, which maintained control of the international waterway until 1977, when an agreement was reached to transfer control to Panama over the course of two decades.
During his inaugural speech, Trump said, “We’re taking it back.”
“We have been treated very badly from this foolish gift that should have never been made, and Panama’s promise to us has been broken,” Trump said on Jan. 20. “The purpose of our deal and the spirit of our treaty has been totally violated. American ships are being severely overcharged and not treated fairly in any way, shape, or form.”
Panamanian President José Raúl Mulino said in a statement published on social media platform X on Jan. 20 that the canal “is and will continue to be Panamanian.”
In its analysis, the team of JPMorgan analysts led by Lalaguna said they “see a path for cooperation and a constructive diplomatic engagement between the U.S. and Panama.”
“Nevertheless, the potential noise associated with the path that could get us there should cause markets to be increasingly sensitive,” the analysts said.
Furthermore, Lalaguna and his co-authors said Trump may consider “punitive measures.”
Lalaguna and his co-authors speculated that the Trump administration has two goals in the Panamanian conversation. First, it could look to “provide and offset” potential tariffs that the United States could impose on Chinese imports “by lowering transit costs.” Second, it could be to “squeeze perceived China-linked activity in the Canal itself.”
In his inaugural speech, Trump said, “China is operating the Panama Canal.”
The JPMorgan analysts said a Hong Kong-based company, CK Hutchison Holdings Ltd., does operate two ports in the Panama Canal and a connecting bridge.
The Panama Canal Authority, an agency of the Panamanian government, is technically in control of the waterway, but Chinese companies have functional control over the ports and pay the bills.
“In our view, this signals, as we have seen in other countries, the intent of Panama to accommodate to the degree it’s possible some of the U.S. demands and look to avoid escalation, which we think will be managed,” JPMorgan said in a note. “Whether this step will be enough to defuse the situation remains to be seen, but there is still a tail risk that the Trump administration may escalate.”
